1. Tit for Tat
On Friday, the White House announced 25% tariffs on $50 billion worth of Chinese goods. As promised, China quickly retaliated imposing 25% tariffs on $50 billion worth of U.S goods. They plan to introduce these tariffs in two phases. First, as the United States imposes such on July 6, China will follow with $34 billion on 549 listed goods including soybeans, pork, chicken and autos. At a later date, they will add $16 billion on chemicals, coal, crude oil and more. Soybeans, crude oil and Copper each lost more than 2% on Friday. However, equity markets pared early loses and the S&P 500 finished down only 4 points. The NQ lost only 0.4%. It will be important to watch how different sectors react to this news as the week gets underway. The XLE Energy Sector ETF lost 2.24% on Friday with Exxon -1.5%. Though planes, jets and aviation equipment were left off the list, Boeing is a stock that we are watching very closely, it finished down 1.25%. The semiconductor space is also in the mix, Micron Technology led the way lower there down 1.6%. Additionally, big names like Apple and Microsoft also lost more than 1%. The NQ closed only 0.5% from its record high which was reached on Thursday. This shows that the potential risk of an all-out trade war is not priced in. The biggest question though is whether we see the White House retaliate back; President Trump said on Friday that any retaliation by China will be met with new tariffs and pointed to an additional $100 billion.
2. Fed Speak
One week after the Federal Reserve hiked rates by a quarter point and laid out a path to hike two more times this year, members take the microphone as they come out of their quiet period. On Monday, outgoing New York Fed President Dudley hosts a banking event at 7:45 a.m. Central. Atlanta Fed President Bostic speaks later in the day at noon CT and current San Francisco Fed President and soon to be NY Fed President Williams speaks at 2:45 p.m. Central. St. Louis Fed President Bullard speaks Tuesday at 6:00 am CT. The biggest single event of the week is a panel discussion with central bank heads. Here, Fed Chair Powell, ECB President Draghi, RBA Governor Lowe and BoJ head Kuroda take the stage in at a conference hosted by the ECB in Portugal on Wednesday at 8:30 am CT. Powell’s appearance comes on the heels of an outstanding post-meeting press conference. One where equity markets, treasuries and currencies remained stable despite the Fed upping their rate hike trajectory. Remember the currency volatility really came Thursday morning after the ECB dovishly announced the end of QE by not projecting to hike rates until the second half of 2019. Given this, traders do want to keep an eye on ECB President Draghi who speaks Monday afternoon and early Tuesday morning.
The crude oil cartel begins their closely watched meeting on Thursday in Vienna. It is widely known that Saudi Arabia and Russia want to increase production by 1 mbpd in order to offset reduced supply from Iran and Venezuela. In fact, Russia said on Thursday that they could increase production by as much as 1.5 mbpd. Crude finished Friday’s electronic session 11.7% from the May 22 high. Selling pressure was added on Friday due to U.S. and China trade tensions which now brings a wild card this week. Iran says that they along with Venezuela and Iraq will vote against raising production. There is only one guaranteed outcome at this point, tensions between the 24 nations are due to run high.